Federal Trade Commission Chairwoman Edith Ramirez speaks about patent trolls and antitrust issues at the National Press Club in Washington, D.C.

Federal Trade Commission Chairwoman Edith Ramirez speaks about...

For years, talk of patent litigation abuse has been limited to the purview of the Silicon Valley cognoscenti. Finally, the discussion is taking place at a national level. President Obama has just nominated Terrell McSweeny to fill the last vacancy on the five-member Federal Trade Commission. As Congress takes up the McSweeny nomination, and the commission considers new business, it is critical to keep the issue of patent trolling at the forefront. Our competitiveness as a nation depends on it.

"Patent assertion" or more colorfully "patent trolling" has exploded in the last few years. In a June 20 speech at the National Press Club, the Federal Trade Commission Chairwoman Edith Ramirez called for a broad investigation of patent assertion. This call for action followed the release of a White House report, along with a flurry of activity in Congress and at the state level, focused on patent trolls. These actions reflect mounting concern that patent trolling is damaging innovation and harming companies throughout the country, from major tech giants to small startups.

The majority of patent lawsuits are now filed by people who do not make products, but whose business is based on extracting money from those who do. Both the White House report and Chairwoman Ramirez's speech cite my research showing that patent assertion entities - that is, trolls - now file almost 60 percent of the patent lawsuits in this country. That is a staggering statistic, and a significant rise from 2007, when the level was only 25 percent.

A patent confers the right to exclude others from an invention, which gives the inventor the opportunity to develop a product or find others interested in developing a product from the invention. (Successful products frequently require the use of multiple patented inventions, as well as unpatented know-how and information, and thus, most patents never pan out.)

Recently, however, the notion of creating new products has been turned on its head, as sophisticated organizations have begun buying up surplus patents and using them to extract payments from companies who already have successful products. Patent bargaining can be tremendously complex, but let me offer an example of why trolling can be so profitable.

It is difficult to know what a patent covers, and it costs millions of dollars in attorney's fees to find out. There is also a risk that one could have to pay damage awards as high as hundreds of millions of dollars. So when a patent holder knocks on the door, a rational company may choose to settle, even if the patent is weak or doesn't apply to the product.

Even better, suppose I knock on your door with a weak patent, and I tell you that I have 100 more. You may be tempted to fight the first weak patent, but you probably don't have the stomach or budget to fight 100. Thus, patent rights holders can bargain for settlements far above the value of the right.

The problems go far beyond the smartphone wars. Consider the assertion entity that sent letters to numerous small companies demanding a license fee for using common office equipment for scanning and e-mailing documents. Small businesses generally know nothing about patents related to scanning, and a small business would have little choice but to pay up.

Other simple patent schemes include demanding license fees from businesses for having Wi-Fi on the premises, or demanding 1 percent of every online transaction that uses a digital shopping cart. More complex schemes include pressuring technology companies into buying expensive shares in large patent portfolios, sometimes requiring the companies to contribute their own patents as part of the deal.

In fact, patent markets have begun to resemble the Wild West - with no sheriff in sight. Patents are being used to force unreasonable settlements, hide embarrassing conduct, pressure others into surrendering rights, and engage in anticompetitive schemes known as privateering. (Privateering occurs when a product company transfers its patents to an assertion entity so that the entity can go after the company's competitors.)

This is not the behavior that intellectual property rights were created to encourage, and it is a far cry from the goal articulated by the founding fathers when they enshrined patent protections in the Constitution - that is, to "promote the progress of ... the useful arts".

Solving the problem, not just nibbling around the edges, will take both long-term and short-term action. In the short term, Congress and the Patent and Trade Office should take immediate steps to stem some of the most obvious abuses. These steps include: instituting sunshine rules to show who owns patents and where the money is flowing; expanding opportunities for review of questionable patents; protecting end-users; and tightening standards for new patents.

More, however, will be needed. Most patent assertion activity is shrouded in nondisclosure agreements or under seal, making it difficult for lawmakers and regulators to institute meaningful reforms. We cannot solve what we cannot see. Crafting long-term solutions will require information.

The power to obtain that information lies with the Federal Trade Commission, under its broad investigatory powers, which have proved to be effective to understand complex market effects and to craft responses. Chairwoman Ramirez's call for a broad investigation is welcome relief.